EXCHANGE RATE PASS-THROUGH: EVIDENCE FROM SINGAPORE.

Abstract

This paper provides direct evidence on the heterogeneous effects of both import and export exchange rate pass-through (ERPT) within Singapore’s industries from 2000-2019. Overall, we find that Singapore’s ERPT is approximately 60% for both aggregate import and export prices. In terms of industries, edible products and crude materials display weak ERPT of about 20-30%, while machineries, manufactured goods and chemical products show moderate pass-through of 50-60%. Oil industry is the only one with a complete pass-through. Using imported input ratio, re-export ratio, HerfindahlHirschman Index and revealed comparative advantage, we provide new empirical evidence on how import intensity and market power result in ERPT variations. We found a positive correlation between import intensity and the magnitude of both import and export ERPT, and a similar relationship between market power and export ERPT. Our analysis seeks to provide important insights for Singapore’s policymaker on its appreciating policy stance for a trade-dependent economy.